- 12 -
Appeals relied on the substitute for ordinary income doctrine,
the same doctrine as had been invoked by the Courts of Appeals
for the Ninth and Third Circuits. See Watkins v. Commissioner,
447 F.3d 1269 (10th Cir. 2006), affg. T.C. Memo. 2004-244; Wolman
v. Commissioner, 180 Fed. Appx. 830 (10th Cir. 2006), affg. T.C.
Memo. 2004-262.
With that background, we proceed to evaluate each of
petitioners’ arguments. Although petitioners’ arguments fall
into four general categories, we need address only three of them.
Their argument that lottery rights are “accounts receivable”
under the Florida law so as to be property rights and included in
the section 1221 definition of a capital asset need not be
addressed. That argument is part of petitioners’ attempt to
include the rights they sold within the definition of “capital
asset”. Petitioners go to great lengths to build a syllogism by
means of premises that State law defines lottery rights as
property and/or that such rights are assignable. Assuming
arguendo that petitioners are correct, the application of the
doctrine obviates the need to address that question. Although
State law may define the nature or ownership of property, Federal
law addresses the incidence of Federal tax. See Aquilino v.
United States, 363 U.S. 509 (1960); United States v. Bess, 357
U.S. 51 (1958). The substitute for ordinary income doctrine
caselaw, applying a substance over form approach, is
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011